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Blockchain can transform logistics and supply chain management in SA

While blockchain in logistics is not fully matured, it holds huge potential and companies should seek to understand its functionality, value, and tangible rewards

22 August 2019 - 13:12 Michael Ade

Picture: 123RF/SASHA 85RU

Businesses the world over are still struggling to understand the opportunities and challenges presented by the next-generation technologies of the fourth industrial revolution (4IR), and SA is no exception. Although a lot has been written and spoken about the pioneering technological concepts underpinning the 4IR — artificial intelligence (AI), automation, robotics, the Internet of Things, 3D printing and blockchain — there seems to be a slow adoption of these game-changing production tools by local manufacturing businesses.

This is partly due to the dearth of relevant skills, but largely due to poor understanding of potential derived benefits.

Nonetheless, the aforementioned ground-breaking industrial manufacturing concepts should be driven and propagated to a tipping point to ensure a common understanding of underlying dynamics and obtain relevant buy-in from local stakeholders and policy makers. Indeed, the technological developments could be instrumental in ensuring that manufacturing regains its mojo and its increased contribution towards the 5% GDP growth required in terms of the National Development Plan (NDP) to reduce poverty and inequality — including unemployment below 15% by 2030.

Despite its perceived challenges, the 4IR is rapidly gaining momentum globally since its inception in 2010 and is increasingly becoming a direction taken by most emerging markets. The news that US technology giant Google recently opened a first-of-its-kind AI research laboratory in Ghana to help deal with relevant high-tech challenges in Africa was refreshing. This is despite Africa being a laggard and playing catch up, with similar research centres already opened in the US, Europe and Asia.

The lack of skills, common standards and governance of blockchain in each industry, variations in digital readiness and poor recognition of the mutual benefits of blockchain-based collaboration act as stumbling blocks

For SA, the implications are that the propagation of the 4IR could undermine inclusive growth, especially given the poor growth, high unemployment rate and scarcity of relevant high-tech skills. Lower-skills jobs will become more vulnerable, needing workers to either reskill or upskill to stay relevant. Consequently, one of the areas where reskilling or upskilling may create more local job opportunities is in blockchain logistics, which is starting to gain traction globally.

Blockchain spawns innovation development and is becoming a vital expanse. With significant benefits in sight, the overall market for blockchain is expected to boom, with some estimates by DHL projecting growth of blockchain technology from a low base of $411.5m in 2017 to $7.68bn by 2022.

While blockchain in logistics is not fully matured, it holds huge potential and companies should seek to understand its functionality, value, tangible rewards, as well as the obstacles to overcome.

While some companies within the Steel and Engineering Industries Federation of Southern Africa (Seifsa) and broader manufacturing do understand the need to adopt automation in value creation through integral automation solutions, or champion automation in the steel machine tool industry, a large majority are still lagging behind in embracing blockchain know-how. Despite local companies’ low readiness levels, blockchain technology can still be a central transformational technology today as companies strive to promote competitiveness and trade integration with the rest of Africa.

Blockchain will arguably be a game-changer in servicing the logistics and trading needs of the local steel industry, where intermediate products or inputs mainly produced in the minefields, mills, foundries or foreign countries need to be transported, since they are often far away from customers or country of provenance. Practically, blockchain in manufacturing can be used to improve trade and supply chains, and to create platforms for businesses.

In a blockchain network, when a ship leaves an overseas port, for instance, all parties involved in the trade transaction(s) — including local logistics companies — are simultaneously informed of progress from the date of shipment to the estimated time of arrival, including information on relevant quantities, customs and exchange control implications, incoterms, inspection, and quality verification requirements. Blockchain greatly reduces bureaucracy or paperwork and eliminates intermediaries by tracking a product’s lifecycle and ownership transfer, even as it changes hands between the manufacturer, logistic service provider, wholesaler, retailer, and consumers.

In addition to promoting faster and leaner logistics in global trade or improving efficiency, as well as transparency and traceability, in supply chains, blockchain adds visibility and predictability to logistics operations. It can accelerate provenance and counterfeit tracking of goods by Sars, thereby enabling responsible and sustainable supply chains. Similarly, it cuts down on circumvention and misdeclaration of imports, thereby minimising revenue loss to the fiscus.

Digital readiness

As with many emerging technologies, considerable hurdles must be overcome before blockchain in logistics can achieve mainstream adoption by local manufacturing industries. The lack of skills, common standards and governance of blockchain in each industry, variations in digital readiness and poor recognition of the mutual benefits of blockchain-based collaboration act as stumbling blocks. Moreover, the fragmented and competitive nature of the logistics industry, characterised by the multiplicity of individual trucking companies often relying on manual data entry and paper-based documentation to adhere to customs processes, is challenging.

Local manufacturing companies and logistics forums — including the Positive Freight Solutions Forum and the All Truck Drivers Foundation — can nevertheless benchmark standards and procedures with international forums, such as the Blockchain in Transport Alliance (BiTA), which was founded in August 2017, focusing on freight, transportation, logistics and affiliated industries. With a membership of about 500 companies in over 25 countries, BiTA is the largest global commercial blockchain consortium. Additionally, enhanced collaboration by businesses in the monitoring and evaluation cluster, including those in broader manufacturing, will trigger the greatest benefits from blockchain transformation.

Government support is also key in companies adapting and adopting blockchain technology by systematically changing business models to embrace the relevant tools. Managers — particularly those in logistics, IT and trade functions — should reskill, gain blockchain expertise, and proactively adopt blockchain-based solutions in logistics as the technology holds out the promise of creating jobs, especially among the youth — and increasing productivity, with lucrative opportunities for businesses.

• Dr Ade is chief economist at the Steel and Engineering Industries Federation of Southern Africa.